Review Terra ($LUNA) – One of the top 10 largest DEFI network

Terra ($LUNA) combines the price stability and wide adoption of fiat currencies with the censorship-resistance of Bitcoin and offers fast and affordable settlements.

What is Terra?

The Terra protocol is the leading decentralized and open-source public blockchain protocol for algorithmic stablecoins. Using a combination of open market arbitrage incentives and decentralized Oracle voting, the Terra protocol creates stablecoins that consistently track the price of any fiat currency. Users can spend, save, trade, or exchange Terra stablecoins instantly, all on the Terra blockchain. Luna provides its holders with staking rewards and governance power. The Terra ecosystem is a quickly expanding network of decentralized applications, creating a stable demand for Terra and increasing the price of Luna.

Terra and Luna

The protocol consists of two main tokens, Terra and Luna.

Terra: Stablecoins that track the price of fiat currencies. Users mint new Terra by burning Luna. Stablecoins are named for their fiat counterparts. For example, the base Terra stablecoin tracks the price of the IMF’s SDR, named TerraSDR, or SDT. Other stablecoin denominations include TerraUSD or UST, and TerraKRW or KRT. All Terra denominations exist in the same pool.

Luna: The Terra protocol’s native staking token that absorbs the price volatility of Terra. Luna is used for governance and in mining. Users stake Luna to validators who record and verify transactions on the blockchain in exchange for rewards from transaction fees. The more Terra is used, the more Luna is worth.

How the Terra protocol works

Stablecoins

Stablecoins are the main feature of the Terra protocol: crypto assets that track the price of an underlying currency. As a digital form of currency, Terra stablecoins can be used just like fiat currency with blockchain’s added benefits: an unchangeable public ledger, instant transactions, faster settlement times, and fewer fees.

Stablecoins are only valuable to users if they maintain their price peg. The Terra protocol uses the basic market forces of supply and demand to maintain the price of Terra. When the demand for Terra is high and the supply is limited, the price of Terra increases. When the demand for Terra is low and the supply is too large, the price of Terra decreases. The protocol ensures the supply and demand of Terra is always balanced, leading to a stable price.

Expansion and contraction

Imagine the whole Terra economy as two pools: one for Terra and one for Luna. To maintain the price of Terra, the Luna supply pool adds to or subtracts from Terra’s supply. Users burn Luna to mint Terra and burn Terra to mint Luna, all incentivized by the protocol’s algorithmic market module.

Expansion: When the price of Terra is high relative to its peg, supply is too small and demand is too high. The protocol incentivizes users to burn Luna and mint Terra. The new supply of Terra makes its pool larger, balancing supply with demand. Users mint more Terra from burned Luna until Terra reaches its target price. The Luna pool gets smaller in this process, increasing the price of Luna.

Contraction: When the price of Terra is too low relative to its peg, supply is too large and demand is too low. The protocol incentives users to burn Terra and mint Luna. The decrease in Terra’s supply causes scarcity, and the price of Terra increases. More Luna is minted from burned Terra until Terra reaches its target price. The Luna pool increases and lowers in price.

Luna is the variable counterpart to the stable asset Terra. By modulating supply, Luna’s price increases as the demand for stablecoins increases.

The market module and arbitrage

The price stability of Terra is achieved by the protocol’s algorithmic market module, which incentivizes the minting or burning of Terra through arbitrage opportunities. Arbitrage occurs when a user profits from price differences between markets.

The Terra protocol’s market module enables users to always trade 1 USD worth of Luna for 1 UST, and vice versa, incentivizing users to maintain the price of Terra. This same principle is true for all Terra stablecoin denominations.

Users can access the mint and burn function of the market module by performing market swaps in Terra Station. To learn how to use the market swap feature of Terra Station, visit the Terra Station market swap guide.

Example
If 1 UST is trading at 1.01 USD, users can use the market swap feature of Terra Station to trade 1 USD of Luna for 1 UST. The market burns 1 USD of Luna and mints 1 UST. Users can then sell their 1 UST for 1.01 USD, profiting .01 USD through arbitrage, adding to the UST pool. This arbitrage continues until UST price falls back to match the price of USD, maintaining Terra’s peg.

The same arbitrage mechanism works in reverse for contraction.

Example
If 1 UST is trading at .99 USD, users can buy 1 UST for .99 USD. Users then utilize Terra Station’s market swap function to trade 1 UST for 1 USD of Luna. The swap burns 1 UST and mints 1 USD of Luna. Users profit .01 UST from the swap. This arbitrage continues, and UST is burned to mint Luna until the price of UST rises back to 1 USD.

Scalability

The Terra protocol is scalable: it is designed to maintain Terra’s price stability regardless of market size, volatility, or demand. The monetary policies encoded into the protocol ensure its durability and resilience in all market fluctuations.

Seigniorage and deflation

Seigniorage is the value of a coin minus the cost of its production. In early versions of the Terra protocol, seigniorage was diverted to fund various community projects. While seigniorage can create enormous value, it also creates inflation in the system. All seigniorage in the Terra protocol is burned, making Luna deflationary in nature.

Why is it an alternative to bitcoin?

Terra handles volume. Transactions involving all Terra stablecoins currently make it the 3rd largest by crypto by volume, behind only Bitcoin and Ethereum. 

Each transaction pays a small fee to Luna stakeholders, in effect, it means the group of Terra holders that have staked their crypto earn further crypto assets from the transactions that take place. 

This elevated class of Luna holders are also key decision-makers in Terra protocol, meaning they assist in the running of the platform.

Such stakeholders have a say in blockchain governance, propose and vote on changes in monetary.   

Luna can still be prone to erratic changes in price though it’s seen less frequently than Bitcoin.

How many Terra coins are in circulation?

Terra has a supply of 1 billion tokens, and if exceeded, LUNA is burned until it returns to the equilibrium supply level. 

New LUNA tokens are minted through the protocol’s algorithm in order to maintain the price of Terra stablecoins.

Minting is the process of validating information, creating a new block, and recording that information into the blockchain.

LUNA was first made available for purchase in a private token sale in August 2018 for initial investors, which included major exchanges such as Binance, and OKEx and raised Terra US$32 million. 

Of the 385 million LUNA minted for the sale, 10% was reserved for Terraform Labs, 20% for employees and project contributors, 20% for the Terra Alliance, 20% for price stability reserves, 26% for project backers, and 4% for genesis liquidity.

How Is the Terra Network Secured?

The Terra blockchain is secured using a proof-of-stake consensus algorithm, in which LUNA token holders stake their tokens as collateral to validate transactions, receiving rewards in proportion to the amount of LUNA staked. 

Token holders may also delegate others to validate transactions on their behalf, sharing any revenue generated. 

In May 2019, blockchain verification and penetration testing firm CertiK completed a security audit of the network by examining its economic model to test against market manipulation, its architecture, and its coding language. 

CertiK found that the “modeling and mathematical reasoning” of the Terra network were “considered sound,” although it would not comment on the blockchain’s performance.

How to Buy Terra (LUNA)

Uphold – This is one of the top exchanges for United States residents that offers a wide range of cryptocurrencies. UK & European residents are prohibited.

Binance – Best for Australia, Canada, Singapore, UK, and most of the world. USA residents are prohibited from buying LUNA.

This is the best option for residents of Europe, to be noted is they do not accept residents from outside of this region.

Gate.io – This exchange currently accepts USA residents.

WazirX – This is the best exchange for residents of India.

Uphold Disclaimer: Assets available on Uphold are subject to region. All investments and trading are risky and may result in the loss of capital. Cryptoassets are largely unregulated and are therefore not subject to protection.

How to Store Terra (LUNA)

There are many wallets that you can use to store LUNA. For Example Trust wallet, Metamask, etc

ZenGo is a multi-chain crypto wallet for everyone. Buy, trade, and store 70+ digital assets including Band Terra (LUNA) with unbelievable simplicity and bulletproof security. ZenGo is known for its legendary, 24/7 in-app customer support and its keyless MPC technology that gives you full control over your crypto, but is always recoverable.

ZenGo is available worldwide including Australia, Canada, Europe, UK, & USA (Purchases are restricted in Hawaii, New York, Rhode Island, US Virgin Islands).

If you seek to make a major investment in LUNA or if you are planning on HODLing this crypto for long periods of time, a hardware wallet is the best option. Hardware wallets keep your crypto stored offline in “cold storage.” This strategy makes it impossible for online threats to access your holdings. The Ledger Nano S or the more advanced Ledger Nano X both support Terra (LUNA).

Team

Terra was founded in January 2018 by Daniel Shin and Do Kwon, who conceived the project to drive the adoption of blockchain technology and cryptocurrency through a focus on price stability and usability.

Kwon took on the position of CEO of Terraform Labs, Terra’s parent company.

Before founding and being CEO of Anyfi, a startup providing decentralized wireless networking solutions, Kwon also worked as a software engineer for Microsoft and Apple.

Prior to developing Terra, Shin co-founded Ticket Monster (a major South Korean e-commerce platform) and Fast Track Asia (a start-up incubator working with entrepreneurs to build fully functional companies).

Verdict

At its core the Terra Protocol is acting like a central bank for digital currencies, providing stability via algorithms and smart contracts.

With a hybrid design that uses both stable coins and a native staking currency, it not only provides a stable transactional mechanism, but also the ability for users to earn yields by holding the staking coin. The stake coin also serves to collateralize the reserves.

There were also some concerns over a single user or organization gaining control of 51% of the total Luna tokens, but with the market cap currently near $3 billion that risk is minimal.

Find more information about TERRA

Website: https://www.terra.money/

Whitepaper: https://docs.terra.money/

Twitter: https://twitter.com/terra_money

Telegram: https://t.me/terra_announcements

If you have any questions, comments, suggestions, or ideas about the project, please email ventures@coincu.com.

DISCLAIMER: The Information on this website is provided as general market commentary, and does not constitute investment advice. We encourage you to do your own research before investing.

VinceH

Coincu Ventures